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The euro underwent another hectic week, but this time it ended much lower. The upcoming week consists of more scrambling towards a resolution for the Greek crisis, and important indicators. Here is an outlook for the European events, and an updated technical analysis for EUR/USD.

While Trichet did signal a rate hike in July, everything else he said was euro-bearish: high uncertainty, distancing himself from the debt crisis, and a hint about the high exchange rate. Time is running out for Greece, and it is not a good time for European leaders to be in a deep rift. We have meetings of economy ministers this Wednesday, towards the summit next week. Let’s start.

Update: German Banks are volunteering to participate in bailout as pressure mounts.

EUR/USD daily chart with support and resistance lines marked. Click to enlarge:Euro to Dollar Chart  June 13 17 2011

  1. Jean-Claude Trichet talks: Monday, 14:00. Even though it is a long weekend in many European countries, the president of the ECB will speak in a conference in London and will talk about the euro, among other things. Trichet will also speak towards the end of the week, on Friday at 00:00 in New York. He will probably be self assured, as always.
  2. French CPI: Wednesday, 5:30. With the interest rate still being at the center of attention, every inflation related data is important. Europe’s second largest country is expected to show a rise of 0.1% in prices in May, after stronger rises beforehand.
  3. Industrial Production: Wednesday, 9:00. Germany and France both disappointed with drops in industrial output. So, the expectations are quite low at the moment – a small rise of only 0.2%. Given previous disappointments, a small drop cannot be ruled out.
  4. ECB Monthly Bulletin: Friday, 8:00. The documents that will be released by the European Central Bank before the recent rate decision will be released. These contain inflation and growth forecasts, and an overview of the economies.
  5. CPI: Thursday, 9:00. After a few months of rises, the annual level of inflation eased in May according to the initial release – to 2.7%. This will probably be confirmed now. Any change will rock the euro. Core CPI, will likely be confirmed at 1.6%.
  6. Trade Balance: Friday, 9:00. Germany’s trade surplus was lower than expected, so the expectations for the number for the whole euro-zone are expected to be lower, a deficit of 2 billion after about half of this last month.

* All times are GMT.

EUR/USD Technical Analysis

At the beginning of the week, euro/dollar challenged a high resistance line of 1.47 (mentioned last week), that held up to the challenge. Towards the end of the week, it made significant falls, eventually closing at 1.4345.

Technical levels, from top to bottom:

The highest level we have is the highest in about two and half years: 1.4940 seen about a month ago. It’s followed by 1.4882 has been a distinct cap.

Below – 1.4775 was the support line of the tight range trading. 1.47 proved to be a very strong line just now,capping an attempt to rise and triggering a big fall. It is of higher importance now.

1.4650 was a peak on the way up, and returns to this role now – a minor line. 1.4550 was a double bottom just now until it  was broken, and is a significant line.

Significant resistance is at 1.4450, although it had a minor role in delaying the collapse.  1.4375 provided support a few weeks ago, and held the pair for a short period of time before the final fall. It is the first line of resistance, though quite weak.

The peak of November 2010 at 1.4282 managed to temporarily cap the pair’s rise, but it is a weak line.  1.4160 was a swing high in the past, and also a swing low a few weeks ago, before the big surge to higher levels. It was shattered in the past weeks and remains a pivotal line now.

Just above the round number of 1.40, we find very important support at 1.4030 – this is a very distinctive line, as seen in the graph.  Lower, 1.3950 was a pivotal line when the pair traded in lower ranges and proved that it is of high importance. The fall of the pair stopped short of reaching this line just now.

Another significant support line is at 1.3860, which worked in both directions earlier this year.  The last important line is 1.3440, that is very distinctive. It was a clear border between ranges, more than once in recent years. A break below will be a very bearish sign.

I am bearish on EUR/USD.

Germany and the ECB are drifting apart on a solution for Greece at a critical time. Even if we don’t get a disorderly default, the crisis is likely to escalate, and this weighs heavily on the euro, together with lower oil prices.

Here are some recommended reads for the pair:

  • Gregor Horvat sees more drops for the euro in current levels, using Elliott Wave analysis.
  • FX Tech Strategy discusses pressure on the euro, also against the pound.
  • Kathy Lien discusses the euro on a TV interview, and sees things more positively.
  • James Chen marks the key levels to watch after three days of falls using his technical methods.
  • TheGeekKnows reviews the week and looks forward.
  • Andriy Moraru provides weekly support and resistance lines for major pairs, including EUR/USD.

Further reading on Forex Crunch: